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BY TOM HESTER SR.
NEWJERSEYNEWSROOM.COM
Gov. Jon Corzine Monday signed the so-called "EnCap Reform bill,'' which requires businesses receiving any combination of government financial assistance totaling more than $50 million to file independently audited financial statements annually with the state treasurer.
"Today, we are putting in place aggressive reforms that will ensure a similar situation is not repeated in the Garden State," Corzine said in North Arlington. "Had these safeguards been in effect prior to EnCap, the project would have been shut down at the first sign of trouble. As stewards of public resources, we must remain vigilant in our efforts to maintain public trust through accountability and transparency. This bill accomplishes that goal."
For any contract that falls under the new standard, the private business must spend a minimum of $1 for every $5 received in public funds; the government agency must reserve 10 percent of the total government funding to be disbursed upon the successful completion of the project, and the business provide a performance bond, the amount of which would be tied to the government funding.
One group that is not praising the new standard is the Sierra Club of New Jersey, which charges 90 percent of the original reform legislation was gutted by the Senate amid the last June rush to summer recess.
Jeff Tittel, Sierra Club director, said Corzine signed the bill without any strong reform.
"With all of the indictments and corruption over development that has taken place in New Jersey, the failure to have any kind of meaningful reform is outrageous,'' Tittle said. "In fact, in some areas, this bill loosens oversight over existing regulations.
"This bill was originally intended to strengthen oversight when public money is involved. Instead, it has been so weakened that it is a sham. All this bill will do is give cover to pay to play and other abuses of public money without providing any real oversight.
"Under this bill, we haven't stopped another EnCap,'' Tittle said. " We've empowered many more EnCaps. We had asked Governor Corzine to conditionally veto the bill and send it back to original form that Assemblyman Gary Schaer put forward. Instead, he took the side of special interests over public interests."
Schaer (D-Passaic) praised the version of the bill Corzine signed.
"Quite simply, the public cannot afford to finance another EnCap-style debacle," he said. "Putting these protections in place will help ensure that the mistakes made with EnCap cannot and will not be repeated. EnCap's failure highlighted the need for more oversight in the way the state provides public money for private redevelopment. The breakdown of checks and balances that precipitated EnCap's collapse must not happen again."
AIG is now honoring its obligation to fund the cleanup of the Meadowlands site. That cleanup is currently underway.
As a result of the EnCap financial disaster, the state lost approximately $200 million, $50 million of which has not been recouped. While $150 million of the losses was covered from insurance by AIG, that company was recently bailed out by the federal government. EnCap borrowed from state government entities, such as the New Jersey Infrastructure Trust, that did not have adequate insurance or bonds to back up the lands.
"Bergen County learned an expensive lesson that it cannot rely on an honor system of handshakes, winks and nods when it comes to multi-million dollar redevelopment deals," said Assemblyman Fred Scalera (D-Essex). "This boondoggle could have been stopped at the very first sign of trouble had these reforms been in place sooner. We can never again allow the public's trust to be undermined in such a way. We must make certain that part of the EnCap project's legacy includes the preventative measure and proactive protections that will secure future public-private redevelopment partnerships."
Under the new standard, failure to comply with the financial reporting deadlines would result in an increase in the amount of public money kept in escrow. Any business that knowingly fails to submit a financial statement or purposefully misrepresents a businesses' finances would be required to refund the full amount of the government funding.
"Public-private partnerships represent a necessary tool for economic growth, but the taxpaying public in New Jersey deserves some guarantees for its investment," said Senator Gordon, (D-Bergen). "As we saw with EnCap, a lack of financing and transparency standards for private redevelopers allowed an unscrupulous organization to dupe public entities at all levels of government to the tune of millions of dollars. This law will ensure more honest fiscal reporting and increased private investment in publicly-financed projects, or funds would have to be returned to the public agencies involved."
In addition, the state comptroller may audit a business' use of any public funds to which the new standard applies and its expenditure of other funds on a project.
"In the race for ratables and sustained economic growth, many public entities become blinded by the proposed benefits, and fail to do their due diligence in applying scrutiny to private redevelopers," said Senator Loretta Weinberg (D-Bergen). "While this new law will act as a disincentive for the sort of EnCap-style financing and fraud which has cost New Jerseyans so dearly, public officials have a responsibility to act as whistleblowers whenever corruption, waste and abuse rear their ugly heads. This law gives us the tools to reclaim public funds spent through hoaxes perpetrated by private redevelopment and remediation firms, but as stewards of the public trust, we have to do a better job to root out the wasting of taxpayer funds in whatever form it may take."
Tittle and the Sierra Club have endorsed Independent candidate Chris Daggett for governor but Tittle and the organization opposed the legislation before the endorsement.
"What is supposed to help fix the problem will not; instead it will be used as cover by politicians for projects that could be worse than EnCap,'' Tittle said. "We believe that this bill in its current form provides political cover while reinforcing the system that is broken. There are so many exemptions to this legislation that it is not even full of holes like Swiss cheese - it has basically become a joke.
"This bill has gone from reform to sham to shame and the governor just failed to strengthen it. This is worse than no reform because they are going to hide behind saying they did something when in turn it will be business as usual," Tittle said.
Tittle said the bill deviates from its original intent. He said the bill initially required oversight for all contracts over $25 million. The version signed by Corzine exempts Jersey City and Hoboken from oversight.
"The recent headlines of widespread corruption in New Jersey show why that's outrageous,'' Tittle said. "The legislature undermined true reform by removing from the bill contracts in the Urban Transit Hub Tax Credit Program. The bill exempts projects not only within the Higher Education Business Partnership Legislation but for all education development. Monies derived from tax exempt bonds are exempted as well as so-called qualified employment incentives, which is a made-up term for any company that receives any types of state money, whether it is business retention or relating to BEIP, sales and use tax exemptions, energy and utility services fund exemptions, or UEZ. This means nay project that gets any state funding is exempt from this bill, which completely defeats the purposed of this legislation.''
Tittle said the legislation also weakens protections for people who get money from any government agency.
"Given the fiasco with Bergen County Improvement Authority and EnCap, this is shameful,'' he said. "The oversight has been severely weakened by limiting the powers of the comptroller to investigate. The weakened bill has removed the person who was supposed to be a designated lead, and instead has turned this lead into an agency. Who is that agency supposed to be, the NJ Builders Association?''
Tittle said that besides Jersey City and Hoboken, these Urban Transit Hub exemptions could affect Camden, Perth Amboy, Trenton, and Harrison. He said the fact that some of these cities have a history of corruption or are currently being investigated show why the laws need to be stronger.
"All the exemptions listed above should have been taken out before this bill was signed,'' Tittle said. "We believe the governor's failure to strengthen the EnCap Reform bill will cost taxpayers billions and hurt the environment. Given the fact that there are billions of dollars of public money at stake, the EnCap Reform bill should have included pay to play reforms and other oversight measures."
